I Buy or Sell Goods From Overseas. What Is the CISG and Why Does It Matter?

Australian businesses are now trading with a wider range of international businesses than ever before. With the ease of import and export increasing, as well as the ability to instantly communicate with businesses all around the world, the number of markets that are available for Australian businesses to exploit continues to expand. When entering new markets, there are certain important considerations to make. One of these considerations is the United Nations Convention on Contracts for the International Sale of Goods (CISG).

The CISG affects a large number of Australian businesses who trade with international partners. This article will outline: 

• what the CISG is;
• how it might apply to your business; and
• whether you should use or exclude it in your international contracts. 

The CISG

The CISG is the United Nations Convention on Contracts for the International Sale of Goods. The CISG is a set of laws to use in the preparation of contracts relating to the international sale of goods. Primarily, it provides a more straightforward process for buyers and sellers who operate in different countries with different legal systems.

As the name suggests, the CISG only applies to the sale or purchase of goods. Therefore, it does not apply when you are buying or selling services (for example, if you provide customised software development services).

There are some other exclusions where the CISG does not apply, including the sale of:

• stocks or shares;
• aircraft and hovercraft; and
• goods by auction.

The CISG will only apply to your business if you are buying or selling goods from another business located overseas. It does not apply to businesses buying or selling goods within Australia.

What Does the CISG Do?

The CISG came into force in 1988, both internationally and in Australia. It was developed to provide a step-by-step guide on how to deal with issues that regularly come up when buying or selling goods internationally. 

The CISG helps businesses to clearly understand their obligations, therefore allowing you to be on the same page as your international counterpart.

The CISG covers important considerations, such as:

• how to form the contract;
• the obligations on the seller;
• delivery of the goods;
• the obligations on the buyer;
• payment;
• resolving disputes; and
• damages.

As countries have their own distinct legal systems, there are many differences between Australian contracts and international contracts. Using the CISG means that your legal team members do not need to be experts in foreign legal systems. Instead, they can use the CISG and apply a simple set of laws that both sides understand.

Application of the CISG

To determine if the CISG applies to you (and the other international party to your contract), first identify whether the country of the other party has also agreed to use the CISG. Some key partners that use the CISG are:

• China;
• Brazil;
• the US;
• Germany;
• Japan;
• South Korea; and
• New Zealand.

However, not all of Australia’s partners use the CISG. Noteworthy exclusions include:

• the UK;
• Thailand; and
• India.

The CISG will automatically apply to a contract for the sale or purchase of goods between your business and an overseas business if their country uses the CISG. This is because the CISG is part of Australian law. If you specifically do not want the CISG to apply to your contract, you need to ensure that your legal team prepares a contract which excludes the CISG.

If you would like to use the CISG, you do not need to specifically include this in your contract if the other business is based in a country where the CISG is used.

If you are buying goods from a business based in India, on the other hand, the CISG will not apply as India does not use the CISG in international contracts.

To Exclude or Not to Exclude?

If you are trading with a partner in another country that uses the CISG, you do not have to choose to include the CISG. However, you must specifically exclude the CISG if you do not want it to apply to you. There are advantages and disadvantages to allowing the CISG to apply to your contract.

Another reason you may wish to use the CISG is that you know what it means in another language. Sometimes international contracts can be interpreted differently based on the language they are translated into and differences in legal understanding. This is especially important if you work with non-English speaking countries. The CISG is also beneficial because it sets out very clear processes to follow if there is a dispute between you and the other party.

However, there are also reasons you may wish to exclude the CISG.

There are also some differences between Australian law and the CISG. If you want specific Australian laws to apply (e.g. how the contract is interpreted), you may not want to use the CISG. Termination of the contract is also more difficult when using the CISG, as the CISG provides that there must be some kind of significant breach for the contract to end. However, you may want to be able to end the contract for different reasons.

Key Takeaways

Although the CISG may sound complex, it is actually fairly simple. It was prepared to be easily understood and to reduce ambiguity between partners.

If your Australian business imports or exports goods overseas, it is important that you understand:

• what the CISG is; and 
• when it might apply. 

You should ensure that you understand which laws apply if you receive a contract from an international partner. These will be either your partner’s domestic law, Australian laws or the CISG. If you import or export goods, you should review your existing contracts to understand whether the CISG already applies to you. If you are about to launch into international markets or source goods from overseas, you should understand the implications of the CISG when preparing your contracts. If you have questions about the CISG, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.